Relevant Life Cover (Employee Death in Service cover)

It is important for a business to protect itself in the event of the death of an owner or a key employee, via Key Person Insurance. However, it is also important to ensure that the family and loved ones of said employee are adequately looked after in the event of death or critical illness. This ensures that they can still meet living costs, such as mortgage payments and childcare.

How does Relevant Life Cover work?

Employees are often the most important asset a business has, so it makes sense to ensure that they are suitably remunerated and well looked after. Having some employee benefits in place can be a great way to generate stronger staff loyalty.

Imagine that you had a valuable member of staff, who has a mortgage and young children, and they are offered a similar role elsewhere. The package they are being offered has a similar salary to the one you are paying, but provides them with a generous Death in Service arrangement. How would your employee view the benefits of a new job?

Conversely, imagine if that employee that was being offered a job elsewhere would have to give up their Death in Service arraignment by leaving your business – how willing would they be to leave?

Providing relevant life cover for employees helps ensure that your family and your employees’ families are adequately looked after. This cover can be arranged for senior employees and directors, or for your entire workforce.

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What is Relevant Life Cover?

Relevant Life Cover is a tax-efficient way of providing Death in Service for some or all of the employees in a business. This is a key element of Business Continuity Planning.

Most large businesses provide Death in Service as standard; however, Relevant Life Cover enables small- and medium-sized businesses to provide comparative benefits to their employees.

Why is it important?

Attracting talented individuals and keeping them is often key to the success of a business. Providing valuable employee benefits such as Death in Service can enable small- and medium-sized businesses to provide comparative benefits to larger firms.

Also, for the directors of the business, it can be a valuable way of creating an additional form of remuneration from the business without creating an Income Tax liability. The premiums are paid by the business and are a deductible expense against Corporation Tax – however, they are not taxed as a benefit-in-kind on the employee.

How is it facilitated?

The business decides which employees or directors it wishes to provide Key Person Insurance for and what multiple of their salary the benefits should be assigned to.

The Key Person policy is set up and the premiums are paid by the business, with the cost of the premiums being a deductible expense against the business’ Corporation Tax bill. The benefits must be paid via a discretionary trust and the beneficiaries must be family members or dependents of the employee. The benefits are paid to the family without incurring any Income Tax or Inheritance Tax.

Due to the beneficial tax treatment of the premiums and the sum assured, relevant life cover is widely used by directors and business owners to protect their families.

It is essential that the Relevant Life Policy is set up in a way that ensures that both the premiums and benefits are tax-free, so you will need to speak to a financial adviser to get the cover right. You will also need to ensure that your accountant is aware of the policy so that the Corporation Tax benefits can be claimed.

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To discuss Relevant Life Cover or another element of Business Continuity Planning with Harry Morgan, call 01444 847269.

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